I noted very recently that the UK’s commitments on tax abuse in its agreement with the EU were weak, and then noted that minutes after finally leaving the EU that the UK abandoned the requirements of the EU directive to tackle tax avoidance.
The reaction of the fray profession’s great and good to these issues as predictable. Overall it was that the commitments we had made were sufficient and that the EU standard did not work anyway. There was claim made in this site by a tax professional that they had worked for a whole year on the compliance of arrangements with the EU standard and still found nothing to report.
It’s my sense that those professionals are being disingenuous. They know three things.
The first is that the international standards with which the UK has said it will company are lowest common denominator standards, and usually with lower requirement than the EU.
Second, they know that the EU standard (for all its faults, and it too is a lowest common denominator standard, because that is what the profession pushes for, continually) is a valuable tool in tackling tax abuse, and strengthens the UK’s armoury in this issue. The whole reason why a person could not find a breach requiring reporting is because the standard has forced compliance upwards, and people do not want to take the risk of being reported, and not because the scheme does not work.
And third, they also know that the power to impose sanctions under most of those international agreements is very limited. What really matters is their domestic interpretation, and the willingness of a government to back them. The very powerful signal that the UK government is putting out is that it is not willing to back these arrangements. That, of course, is just what many in the tax profession still want.
I am pleased that the FT is reporting concern in this issue this morning. Green MEPs, who have long been in the forefront on this issue, are leading the way. As the FT notes:
Brussels has attempted to restrict the UK’s ability to undercut the EU by embarking on a dash for deregulation, insisting in the trade deal that Britain sign up to “level playing field” provisions in areas including the environment and state aid.
But the MEPs’ letter complains that the deal does not go far enough regarding tax and transparency. Corporate tax avoidance measures are limited to the global rules of the OECD, and do not include the EU’s tax haven list and code of conduct on business taxation, they argue.
The MEPs also write that taxation and anti-money laundering (AML) rules are excluded from the deal’s “rebalancing” provisions, which are intended to deal with regulatory differences in the future. Its subsidy rules would fail to protect the EU against a “potentially aggressive” approach to corporate taxation by the UK, they argue.
I believe that those making complaint are right to do so. The provisions are dangerously weak and the risk of Singapore-on-Thames is very real.
The FT sought to find a counter argument, noting that:
Some politicians agreed the UK was unlikely to seek to significantly undercut the EU given shared commitments to international standards, including those set by the OECD and the Financial Action Task Force.
And they noted:
“If the United Kingdom does not want to lose all credibility as an international actor, there is a baseline that the UK cannot go below,” said Markus Ferber, an MEP from the centre-right European People’s party. “After all, I do not think that the UK will have any desire to find itself placed on AML or taxation blacklists.”
Don’t you believe it. The UK is actively planning to go below that baseline. What else are freeports for?